Report No. 177743-RO

RomaniaPublic Expenditure Review(In Two Parts) Part II: Civil Service Reform

June 26, 1998

Poverty Reduction and Economic Management Sector UnitEurope and Central Asia RegionThe World Bank

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CURRENCY AND EQUIVALENT UNITSCurrency Unit = Leu

Period Average Exchange Rates(Lei per US dollar)

Jan-Apr1995 1996 1997 1998

2,033.3 3,084.2 7,167.9 8,277.8

ABBREVIATIONS AND ACRONYMS

EU European UnionGDP Gross Domestic ProductIMF International Monetary FundISPI Intersectoral Priority Indicator (component of a government-proposed

civil service wage system)OECD Organization for Economic Cooperation and DevelopmentSIGMA Support for Improvement in Government and ManagementSMART Support for Managing Administrative Reform in TransitionSRV Sectoral Reference Value (component of a government-proposed civil

service wage system)UK United KingdomURV Universal reference Value (component of a government-proposed civil

service wage system)US United States

FISCAL YEARJanuary 1 - December 31

Vice President: Johannes F. LinnCountry Director: Christiaan J. Poortman (Acting)

Sector Director: Pradeep K. MitraSector Leaders: Frank J. Lysy and Sanjay Pradhan

Task Team Leader: Hassan Fazel

ROMANIACIVIL SERVICE REFORI

Table of Contents

1. INTRODUCTION AND SUMMARY ......................................................... 1I

II. SIZE OF THE CIVIL SERVICE .......................................................... 3

III. POLICIES FOR CIVIL SERVICE REDUCTION ........................................................ 5

IV. CIVIL SERVICE REGIME ......................................................... 6

BACKGROUND ............................ 6CURRENT SYSTEM ......................................................... 6THE NEW CIVIL SERVICE LAW ......................................................... 7ESSENTIAL PROVISIONS FOR A BASIC LAW ......................................................... 10MAIN ELEMENTS OF THE DRAFT CIVIL SERVICE LAW ........................................................ 10

V. WAGE LEVEL AND STRUCTURE ........................................................ 13

BASIC WAGE STRUCTURE ........................................................ 13CIVIL SERVICE WAGES IN THE DRAFT STATUTE ........................................................ 20

VI. CIVIL SERVICE MANAGEMENT ........................................................ 24

RECRUITMENT ............................ 25r ERFORMANCE EVALUATION......................................................... 26PROMOTIONN ......................................................... 2

TERMINATION AND RETIREMENT ........................................................ 27REFORM STRATEGY AND PROCESS ......................................................... 28ENHANCING POLICY COORDINATION THROUGH A MULTI-YEAR PROGRAm LAW ......................................................... 29

VI. LIST OF RECOMMENDATIONS ............................. 30

BASIC RECOM ATIONS ............................. 30SCOPE OF PUBLIC ADMINISTRATION .......................... 30

C IVIL SERVICE STATUTE .......................... 31PERSONNEL CLASSIFICATION SYSTEM .......................... 31CIVIL SERVICE MNAGEMENT ............. 31CML SERVICE EMPLOYMENT ........................ 32TRAINING ......................... 32

ANNEX 1: THE POSITION AND CAREER PERSONNEL SYSTEMS .................................................. 33

ANNEX 2: CIVIL SERVICE EMPLOYMENT AND WAGES, 1997 .................................................. 36

This report is based on the fndings of a World Bank mission which visited Romania from February 9 to 21, 1998.The mission members were Peter Dean, Hassan Fazel, Allister Moon (ECSPE), Ruud Berndsen (Consultant) andGuido De Weerd (Consultant). Cornelia Giurescu (ECCRO) joined the mission during its stay in Bucharest. Anearlier draft was reviewed with government officials during June 8 to 11, 1998.

I. INTRODUCTION AND SUMMARY

1. This report on the civil service in Romania. and a parallel one on public sector financialmanagement, are products of a review of public sector expenditure and management issuescarried out by a World Bank mission during February 1998. The purpose of these reports is toadvance the process of policy dialogue and reforms that, over time, would lead to: betterdefinition of the role of the public sector in the emerging market economy, strong aggregatefiscal discipline, allocation of public resources in accordance with the country's strategicpriorities, and efficient provision of services. This process began with the country's own goal ofstrengthening development administration, to which several partners, including the OECD, EU,IMF, the UK Know How Fund and the US Traesury, have made sustained contributions thus far.

2. While Romania's civil service has been spared the two most salient problems of manyformer Soviet bloc civil service systems-it is neither overly large nor too great a fiscal burdenon the overall economy-it remains a highly fragmented system without the leadership structureneeded to build a coherent and coordinated service to serve Romania's needs.

3. Romania's public administration suffers from two fundamental structural weaknesses:fragmentation and the absence of an agency in charge of personnel management and policy.These have consequences throughout the system-from availability of data and coherentleadership to overall coordination between objectives and subsequent courses of action. Thefragmentation of its essential working instrument is a major impediment for the government inpreparing and implementing the decisions its program requires.

4. For nearly 50 years-and two generations of civil servants-Romania's civil service hasfollowed the "open system" characteristic of the former Soviet Union, China and other centrallyplanned countries. Under this system contractual arrangements for civil servants, includingsalaries, are governed by the same labor legislation as other sectors of the economy. Under the"open system" state employees are managed by sectors, rather than as a consolidated groupdedicated to the interest of the state. Their loyalty and labor union representation is to theirbranches.

5. This legacy of a fragmented system, dating from an era when ministries and committeeswere similar to state enterprises, with boards in charge of management and recruitment, is notconsistent with a professional public administration or civil service management system. Noprivate or public organization can expect to enhance its capabilities without putting an end to thisstructural deficiency, which is slowing the reform process in Romania.

6. Under the aegis of administrative reform, the government began drafting a new civilservice statute in 1993, with assistance from EU-PHARE and British bilateral funding. While itundertook important activities, such as collecting documentation, conducting interviews,seminars, and study tours, the reform process was not clearly defined or managed. The twosuccessive drafts of the civil service statute reviewed by the mission in February 1998 were

unclear in a number of critical areas. One major impediment to the drafting process has been thelack of a standard procedure for intra-governmental consultation and coordination of policies anddrafting laws to carrv them out (see Box 1).

7. The latest draft civil service statutes are an ineffectual mixture of the career and positionsystems that continue, rather than resolve, the major deficiencies--fragmentation and lack ofcoordination--noted above. The drafts also omit essential provisions regarding salary andpersonnel classification. While government policy calls for a "career" rather than a "position"civil service structure, its draft statute mixes the two structures in a way that is inconsistent withEuropean standards. The draft sets statutory rules for organizing and managing civil servants-rather than Romania's general labor regulations-but undercuts the effectiveness of these rulesby wielding too broad a brush: the new statute would cover all public servants, whetheremployed by the central government, autonomous bodies, or the authorities governing judet(counties), cities, and even villages.' This would place huge administrative burdens on thecentral administrative structure, hamstring autonomous bodies that, as quasi-private enterprises,should be able to set their own personnel rules, and impinge on the autonomy of localgovernments. It would be far preferable to limit the definition of the civil service to centralgovernment agencies.

8. While the draft statute would create a High Civil Service Commission, the lack of acentrally controlled recruitment system, or common standards for progression through the ranksand promotion mean that the system would remain fragmented. The proposed performanceevaluation system would be based largely on subjective criteria open to arbitrary decisionmaking.

9. Human resources management is also fragmented and non-standardized, withoutguidelines monitored by central leadership. No specialized technical unit is in charge ofmanagement issues regarding organizational structure, staffing levels and profiles, and relatedjob descriptions. Human resources management units and management tools are notstandardized. The present system does not generate the reliable system-wide data on whichmanagement and policy decisions must be based. Global data are available by economicbranches and for eight economic regions. More detailed data are available at ministry level,subordinated units, and judet (county). Essential information for a comprehensive civil servicepolicy is lacking.

10. Training is not yet organized with reference to a system of critical training needsassessment carried out in coordination with supervisors and management units. The linkbetween reform options and supporting training initiatives and programs needs to be improved.Twinning of institutions could provide an excellent training tool to speed up implementation ofsome reforms.

During a follow-up visit in June 1998, the mission was informed a subsequent draft statutecontained a narrower coverage of employees, though the mission could not ascertain this.

1 1. While the wage bill is comparatively unexceptional and ratios of the wace bill to fiscalrevenues and current expenditures seem to be stabilizing, the salary mechanism has severaltechnical deficiencies. It is not consistent with performance evaluation and the system of salarysupplements and allowances undermines the salary system. Salarv levels are at half the levelthey should be and are managed in common with salary levels in other economic sectors thatshould be governed by other types of management systems. While the salary mechanism in thenew drafts would improve some parameters, it does not address the fundamental deficiencies.

12. Sections II to VI below analyze and review, respectively, the size of the Romanian civilservice; current policy on civil service reduction; the civil service regime and the proposed newstatute: civil service wages; and management of the civil service. Based on these reviews,section VII summarizes the report's recommendations on various aspects of the civil service. Itshould be noted that the analyses and the recommendations of the present report are by no meansexhaustive. They just represent a start, focusing on unifying the civil service and on themotivation and management of its members. Additional matters that could be studied in futurework include strengthening the capacity for formulating and coordinating government policy,and efficient and effective systems for delivering public services.

II. SIZE OF THE CIVIL SERVICE

13. With 813,000 employees (3.6 percent of the population), not including military andcivilian security forces, Romania's civil service is not overly large compared to other Europeancountries (Table 1), particularly as the Romanian data include local and elected officials.

14. While there has been no central compilation of data regarding distribution by length ofservice, age, gender, training level and training specialty, employees of state field services andemployees of local government, this kind of information is available at the ministry level infragmented form, and construction of a central database for personnel policy does not need to bestarted from scratch.

Box 1. Improving the Reform Process in Romania

The formulation of an effective civil service statute that can win acceptance across glovernmentand among civil servants themselves has been hampered by an uncoordinated drafting process underwhich initiating ministries prepare draft legislation after only minimal consultation with the othergovernment bodies-or employee groups-that would be affected by a new statute.

Under the 1993 decree that initiated the civil service reform process the initiating ministry drawsup a draft law, then sends it to the ministries and agencies it would affect for comments; these bodieshave from seven days to a month to respond.The proposed law is then submitted to Parliament's Legislative Council, to verify that it is consistentwith the Constitution and other laws.

The proposed law is then sent to the Legal Directorate in the Office of the Secretariat General,which has five days to finalize the draft law before submitting it to a government meeting. If agreementis reached at that meeting, the Secretariat General sends the draft to Parliament; if none is reached, thedraft is returned to the initiating ministry.

This process skips several coordination stages used in most countries. The lack of preparatoryinter-ministerial coordination puts a heavy burden on the Council of Ministers, the ultimate supra-ministerial coordinating institution to negotiate compromises that should have been worked out before astatute was drafted. The system generates bottlenecks that slow the government's capacity to takedecisions-and raises the possibility that draft statutes will be rejected, so that the whole process has tobe started over.

A more effective procedure-consistent with the Romanian Constitution's Article 73 governinglegislative initiatives-would begin with the initiating ministry preparing, and circulating a dossier thatcontains all information required for agencies to formulate positions on the issues. The dossier would setout the proposed initiative's links with the government program, the current situation, existinglegislation, the objectives of proposed changes, and its financial impact. The document would also setout the consultations to be organized, and recommended options; working drafts of the law could beannexed to clarify the recommended options. The initiating ministry would then organize inter-ministerial coordination meetings, finalize the dossier, and send it to the Secretariat General, along withminutes of the coordination meetings.

Responsibility would then pass to the Secretariat General, which would organize and presideover inter-ministerial meetings aimed at arbitrating differences between ministries, and, if required bythe subject, judet prefects. The Secretariat General would also organize all consultations requested byother agencies.

The General Secretariat would then present the dossier to the prime minister for final arbitrationand decision. Under this procedure policy coordination would remain with the prime minister, but theadministrative burden of coordination would be transferred to the Secretariat General as the kingpin andcentral hub of the preparation, coordination, preparatory arbitration, implementation and follow up of thegovernment agenda.

Table 1: SIZE OF CIVIL SERVICE IN SELECTED EUROPEAN COUNTRIES

GNP Total State &Per State Civil Local Gov't Local Gov't

Country Popula'n Capita Servants Employees Employees(Million) (US $) ('000) (% of ('000) (% of (% of Per

Pop.) Pop.) Pop.) 1,000Pop.

Belgium (1992) 10.3 19,300 281.8 2.74 237.8 2.31 5.04 37Denmark (1987) 5.1 23,660 205.0 3.99 586.0 11.39 15.38 25France (1990) 56.6 20,600 2623.8 4.63 1195.7 2.11 6.74 22Germany (1990) 79.6 23,650 1408.0 1.77 1358.3 1.71 3.47 57Greece (1989) 10.0 6,230 222.5 2.21 32.1 0.32 2.53 45Holland (1990) 15.0 18,560 715.8 4.76 243.7 1.62 6.39 21Ireland (1991) 3.5 10,780 47.6 1.36 26.6 0.76 2.12 74Italy (1988) 57.7 18,580 2204.2 3.82 1354.1 2.35 6.16 26Kazakhstan 16.9 1,540 742.1 4.38 341.2 2.01 6.39 23Portugal (1989) 10.3 5,620 403.9 3.89 109.8 1.06 4.94 26

I:Romania (1997);: 22.5 1,607 812.6 3.60 a/ 3.60 28Spain (1992) 39.0 12,460 1195.9 3.06 374.6 0.96 4.02 33U.K. (1991) 57.5 16,750 788.0 1.37 2948.0 5.12 6.49 73

!/ Included among state civil servants.

Sources: Annex 3 of Romanian State Budget Law, 1997, and mission consultant data files.

15. Analysis of the sectoral distribution of authorized staffing levels (Annex 2) shows 49.4%(401,000) in the Ministry of Education; 30.3% (246,000) in the Ministry of Health (otherministries also have small health components), and 1.9% in autonomous agencies. The Ministryof Finance employs 4% (33,800) and public authorities represent 29,000 positions. About 14%of civil service employees (nearly 114,000) are left over for other functions within thegovernment machinery at central, regional and local level. Even if a balance between the numberof employees and the level of their remuneration is to be recommended, more than a moderateadjustment may have a negative impact on the functioning of the core public services.

III. POLICIES FOR CIVIL SERVICE REDUCTION

16. The government intends to reduce staffing 10% during fiscal 1998 by cutting authorizedpositions. Spreading this evenly thorough the civil service would not enhance the capacity ofcore public services. Most ministries and departmnents within ministries consume less than 1% ofthe global authorized level, and significant reductions in state employment cannot be obtained byreducing staff in minor ministries, but will require rethinking some ratios.

17. Compared with public institutions in other European countries, some Romanianinstitutions employ a large number of civil servants-more employees are appointed at supra-

ministerial levels (Prime Minister's Office. Government Secretariat. Court of Account) andwithin Parliament, for instance, than in France. In other components of the goveramentmachinery staffing strength seems low, and a functional analvsis of central administrationstructures may be required.

18. Adjustments could be achieved through result-oriented management, rethinking the roleof government bodies and institutional reform. The public health services could be oriented less

2toward curative care and more toward achieving standards of public health . Institutional reformcould be oriented toward transferring some services to local government bodies to bringaccountability closer to elected local councils, and by closer supervision of spending.

IV. CIVIL SERVICE REGIME

Background

19. For nearly 50 years-and two generations of civil servants-Romania's civil service hasfollowed the "open system" characteristic of the former Soviet Union, China and other centrallyplanned economies. Under this system contractual arrangements for civil servants, includingsalaries, are governed by the same labor legislation as other sectors of the economy. Under the'open system" state employees are managed by the agencies they work for, rather than as aconsolidated group dedicated to the interests of the public and state. Their loyalty and laborunion representation is to their branches.

20. The govenment began drafting-with assistance from the EU's PHARE program andBritish bilateral funding-a new civil service statute in 1993. While it undertook importantactivities, such as collecting documentation, conducting interviews, seminars, study tours, etc.,the reform process was not clearly defined or managed, and the draft statute reviewed by themission in early 1998 remains unclear in a number of areas of critical importance.

Current System

21. Romania's present civil service system is based on formal education and training, asrequired by any sound civil service system. There are, however, some exceptions (e.g. apharmacist is in a higher grade than a dentist) and some positions are outside this grading system(e.g. commissar general of financial guard).It is divided into four education levels:

S (Superior): the highest category of civil servants with a university degree of at leastfour years (bachelor or graduate of arts, science, law, etc.);

2This is not in opposition with the previsions of art. 33 of the Constitution regarding theright to protection of health.

SSD(Superior Scurta Durata) civil servants with higher education degrees reflectingtwo or three years post-secondary or post high-school education.

M (Medium): civil servants with secondary (high-school) educations;

G (Gymnasium): civil servants with an education level of four years after primaryeducation.

Each of the above categories is divided into grades, starting with Debutant, then moving togrades IV, III, II, I, and IA.

22. This system looks simple, but each grade of each professional or technical specialty isdefined and specified by a name expressing also a particular job class and job level, which makesthe system rigid and complex. Simplification and transparency can be realized without majordifficulties and without turning the employees away from a system to which they areaccustomed. This highly needed simplification could facilitate, and reduce the cost, of thecomputerization of the whole administrative management system. It could also easily be linkedto a more modem and more motivating salary mechanism.

23. As in the French system, the civil service is composed of technical specialties. Althoughmainly used for the salary system it is easily adaptable to administrative management, careermanagement, human resources development, definition of job content, for drafting staffing laws,etc. The extensive classification system is no longer in harmony with the new role and functionsof the state in a market economic system, but could easily be reduced to 20 or so groups ofimportant technical specifications covering all core public services of all ministries.

24. The classification system is not limited to functions within the central government, butalso covers local authorities, autonomous agencies and all types of jobs from high-leveleconomists to ballerinas or lyricists.

25. It is generally accepted by experienced practitioners in civil service reform and paysystems that new personnel systems have to bear some resemblance to the system employees areaccustomed to, and simplification of the current personnel classification system may provide abridge between old and new. The new system must, however, draw a clear line between the civilservice personnel system and that of the private sector, and between the civil service andemployees of all other branches of the economy. As in the private sector, personnel of theexecutive branch should be considered as a single branch whatever the professional specialty,appointment, position or economic activity of employees. The career system chosen should alsoconfirm the principle of separate grading of individuals and jobs.

The New Civil Service Law

26. The Romaniar. government's General Secretariat began drafting a new civil servicestatute in early 1993 to fulfill the 1991 Constitution's mandate for an organic law to regulate the

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status of civil servants. Comments by ministries and SIGMA-' experts noted4 the absence ofprovisions or arrangements for the overall management of the civil service. legal authorizationfor any central body to implement reforms in a coordinated manner, and a distinction betweenemployees of government agencies and other public servants such as the arned services, localgovermnent, etc. During the February 1998 Public Expenditure Review (PER) mission twodifferent drafts of Statutes of the Civil Servants were reviewed.

27. In the hierarchy of Romanian legal acts, organic laws are situated between theConstitution and ordinary laws; they are intended to complete and to specify the organization andpowers of constitutional bodies. Organic laws can specify that the fundamental aspects ofstatutory rules be set out in ordinary laws and less fundamental aspects regulated by acts of thegovernment. Thus, the organic law covering civil servants regulates the respective powers ofParliament, the president, and the government.

28. From a formal and constitutional standpoint, neither of the draft civil service laws can beconsidered as an organic law but rather as an ordinary law. Neither are the new statutesregarding military employees and regarding teachers organic laws. This kind of mixture oramalgam between formal organic stipulations and ordinary provisions could create an unhappyprecedent regarding other organic laws and could be a too rigid tool to enable minor or majormodifications of the statutory rules and the dependent instruments for management and humanresources development.

29. A more workable statutory framework would be based on an organic law specifying theshape of the statutory system, and the main and common elements applying to all employees ofthe state, and indicating the elements to be regulated (or already regulated) by law. This would besupplemented by ordinary laws regarding different categories of personnel, including, forinstance, statutes covering personnel in the public services, the military, magistrates and judicialofficers, employees of local authorities, teachers (which already exists), contractual employees ofthe state, and employees of different types of autonomous admirnistrative bodies.

30. These statutes could be complemented by a set of government decrees regarding thespecific conditions concerning the personnel of the different classes (cadres) or technical groupswithin the personnel classification system. This would enable specific rules to be draftedregarding different professional specialty groups such as general administration andmanagement, labor and social protection, health, education, agriculture, planning, taxation, andcustoms. To maintain continuity, each of these specific rules could incorporate, aftersimplification, the titles already in use in the Romanian public administration.

SIGMA is a joint, Paris based, OECD/PHARE initiative in Support for Improvement inGovernance and Management in 11 countries.

4 Project Support for Managing Administrative Reform in Transition (SMART), Know HowFund Project - Report Phase I.

()

3 1. The main differences between the two drafts concern the status of elected persons. Noother country in Europe considers elected officials civil servants; there is no confusion betweenthe concepts of servant of the state, a member of one of the different constitutional authoritiesand bodies, and civil servant, a member of one of the public services of the sole executive body.For several reasons, the broad variety of elected officials people are not considered civil servants,and their administrative and financial conditions are usually governed by a special set of rules.

32. While government policy calls for a "career" rather than a "position" civil servicestructure (see Box 2 and Annex 1), its draft statute mixes the two structures in a way that isinconsistent with European standards. The career system has a long tradition in most Europeancountries-while Denmark, the United Kingdom, and the Netherlands use the position system.

Box 2. Career and Position Civil Service Systems

In the Position System-used in the Netherlands, Denmark, and Britain-salary levels are fixedaccording to job classifications; grade and salary levels are attached to job levels, without reference tothe qualifications of individual employees.

Under the Career System-used in France and most other European countries-grades andsalary levels reflect the qualifications and attainments of individual employees, whatever position theymay hold.

33. Adopting the career system would help government build a civil service more dedicatedto the interests of the state than to the interests of individual ministries or agencies. If the careersystem is confirmed by government, it will be necessary to take into account all theconsequences of this option at each stage of the civil service reform process. Each element of theset of laws and regulations, the administrative and financial management, the wage system, theclassification system and also the whole implementation process (filing system, managementtools, training and study tours) need to be organized to accord with the career system.

34. The draft sets statutory rules for organizing and managing civil servants-rather thanRomania's general labor regulations-but undercuts the effectiveness of these rules by wieldingtoo broad a brush: the new statute would cover all public servants, whether employed by thecentral government, autonomous bodies, or the authorities governing judet (counties), cities, andeven villages. This would place huge administrative burdens on the central administrativestructure, hamstring autonomous bodies that, as quasi-private enterprises, should be able to settheir own personnel rules, and impinge on the autonomy of local governments.

35. The draft statute would create a High Civil Service Commission, but the lack of acentrally controlled recruitment system, or common standards for progression through the ranksand promotion mean that the system would remain fragmented. The proposed performanceevaluation system would be based largely on subjective criteria open to arbitrary decisionmaking.

Essential Provisions for a Basic Law

36. The first step in drawing up a new civil service law involves setting the basic legalframework for a hierarchy of organic and ordinary laws supplemented by government orders anddecrees. The next is to design a management structure that defines which agency at the centrallevel will be in charge of personnel management issues, personnel policy, human resourcesdevelopment, management procedures, etc. This function, being a permanent horizontal functioncomparable with financial management, can hardly efficiently be accomplished within a linefunction or be joined to another core function of the state. The third step is the development andadoption of a basic human resources policy. Once these basic structural elements are in place, thefinal drawing up of civil service statutes becomes largely a technical task.

37. As state employees are governed by law, rather than contracts, statutory rules ought toexplicitly address, at least in principle, issues of the type and scope of the civil service, thepersonnel classification system, principles of remuneration (compensation system andincentives), rights and duties, leadership and consultative bodies, recruitment, progression(salary increments) and seniority, promotion, performance evaluation, and end of service. Amodern civil service statute is not a bill of rights and duties but, above all, a management system.

38. Not all of these elements are incorporated in the latest version of the draft law. Takinginto account that this law will establish the working environment for tens of thousands stateemployees during their whole professional life and will determine the conditions of publicservice delivery, a re-examination of this draft could help the Romanian authorities design andimplement a more modern statutory system that could be a benchmark for the region.39. The introductory section of the draft provides useful information about the objectives ofthe law, and the translation of these issues into a formal legal shape. It sets out the followingimportant principles for building a professional civil service:

Main Elements of the Draft Civil Service Law

* Civil servants will be differentiated from other types of employees. Civil servicepolicy and wage policy will be differentiated from policy regarding employees of theprivate sector and of other workers in the rest of the economy; employees are, also,no longer to be managed by branches of the economy or by budgetary sectors;

* The concept of a career public service is supported Yet the draft presents a mixtureof the career and position systems, without a clear line between individual statutoryrank and the job level in the structure;

* European Community standards in this field are to be met. From a strict technicalpoint of view, European Community standards are not met in this draft;

* Promotion is to be achieved on competitive basis. But no central leadership is createdto manage this kind of issue on an equal and transparent basis throughout the civilservice; the existing human resources unit within the Office of the Secretary

General. plaNing mainly a juridical role. could provide the basis for this kind ofmanagement leadership;

* A system of annual evaluation is instituted, the consequence of poor rating will bedowngrading or dismissal. Again, no central body is assigned this task;

* Public servants will be guaranteed the right to strike in accordance with legalprovisions;

* Public servants may not hold two positions at the same time, except for specificexceptions. The draft is less explicit regarding the plurality of public and privatepositions, either directly or through intermediaries;

* A central committee, under the prime minister, shall be in charge of checking theobservance of the provisions of the statutes and shall set up a computer database ofthe civil service. The proposed High Commission, with non-permanent members,cannot be considered a permanent public service body and bear all the administrativeand political responsibilities incumbent to a central civil service leadership and towork out, implement, follow up and evaluate personnel policies; and

* A parity commission shall be set up at the level of each public service agency. Theconcept of a public service agency needs to be clearly identified; it could be a verysmall unit with less than 10 employees or a large one with several thousandemployees.

40. The intentions stated in the preamble are not met in the body of the draft law, which alsodoes not put an end to the fragmentation of the civil service, which is currently more anaccumulation of ministerial and agency civil services than a civil service of the state.

41. Although the concept of a career public service is promoted in the draft, the term'career" does not appear anywhere in the draft law; some provisions are clearly aimed at a careersystem, others at a position system,5 with no clear and formal line between individual gradingand job level.

42. For example, the draft divides public servants into two groups: specialized publicservants holding positions for which long- or short-term training in the specialty is required, andadministrative public servants holding positions for which unspecialized training is required.This would make it difficult to decide whether an economist or a legal adviser in charge ofhuman resources development is a specialized public servant or an administrative publicservant-and whether he would switch groups if appointed to another job. The draft also gives avery unusual definition of the concept of public service, defining, erroneously, logistic and stafffunctions as public services governed by the fundamental public administration laws andconcepts.

43. The scope of the civil service has direct implications for administrative and financialmanagement and an immediate impact on the wage bill. According to the draft, the statutesconcern all employees of public service of the president and of the two chambers of the

SSee annex 1 Career/rank system versus Employment/position system.

Parliament. of the gTovernment, ministries, other specialized bodies of the central publicadministration. autonomous administrative authorities, their decentralized public services. countyand local public services, authorities of the county councils and prefects offices, mayoralties ofcities and villages. This is an exceptionally broad scope that covers specialized bodies,autonomous administrative authorities, all kinds of services, benefit oriented or non-profitinstitutions and even regies autonome. This will make it very difficult to manage, master andcontrol the wage bill, to get, on a permanent basis, all files and positions updated at central level,and to update all laws and regulations for different kinds of agencies dependent on differentministries.

44. A narrower definition of the scope of the civil service excluding, for example: (a)employees not essential to the continuity of the public service, (b) those without educationalqualifications allowing access to higher grades within a career system, (c) those belonging tolegal entities other than the state, (d) those appointed to services not under to the generalfinancial and administrative management rules of the public services, and (e) those who cannotbe submitted to the same general personnel career system and procedures would greatly simplifymanagement of the civil service.

45. The draft sets three options for local authority personnel policies: the general labor laws,a unified statutory system drafted to give personnel the same administrative and financialconditions whatever the local government and the resources of its budget, or a separate statutelinked to the general civil service statute. While each of these options has advantages anddrawbacks for state and local authorities, a unified statutory system is the most appropriate tocombine and reconcile local autonomy and state supervision.

46. The draft calls for basic salaries to be established by a special law. As this question is acore element of a statutory system, the salary mechanism should be incorporated into the basiclaw. Other paragraphs in the same article of the draft provide for salary increments calculated asa fixed percentage of the basic salaries: up to 15% for merit, up to 25% for seniority; up to 20%for stability. This is a disturbing provision, as the basic salary structure is unknown, as is theimpact these percentages would have on the wage bill. The benefits as provided in the draft are amixture of statutory situations, benefits in kind and social protection. The amalgam of thesediverse questions and the integration of these sorts of provision in an organic law removes animportant personnel management policy tool from the government, without an evaluation of thefinancial impact on the state budget and the budgets of towns and municipalities.

47. Neither these provisions regarding wages and benefits, nor the final and transitorydispositions take into account the wages and benefits already paid to teachers and magistrates.Finally, the pension system provided in the draft is generous. This delayed remuneration willbecome a heavy burden on the budget, as it can amount to as much as 100 % of the salary of thelast month before retirement, as several allowances are included in the basic salary.

V. WAGE LEVEL AND STRUCTURE

48. Romania's 1997 budget law shows that 24% of the budget--some 11 trillion lei--wasallocated to personnel expenditures. While this figure has risen in the past few years-from13.6% of current expenditures in 1992 to 22.53% in 1995, and 21.34% in 1996-it is notexceptionally high.

49. In high-income European countries the overall size of the wage bill (local governmentincluded) is between 11% and 18% of current expenditure; in middle-income European countries(Greece, Portugal) about 23.5%. In several low-income monetary areas (such as the CFA area)the convergence criteria for wage bill limit is set at 46% of fiscal revenues. In terms of fiscalrevenues, Romania's wage bill amounted to 22.57% in 1995, 22.45% in 1996 and 27.04% in1997.

50. According to the 1997 budget law, the wages bill amounted to 10.878 trillion lei6,including national defense and security forces. The 812,604 civil servants, including 143 senatorsand 343 deputies, accounted for 8.493 trillion lei. Personnel outside the civil service salarymechanism are the military (Army, Navy, Air Force) drawing 14.7% of the wages bill. Thesecurity forces under the authority of the Ministry of Domestic Affairs (Ministry of Interior),composed of the Frontier Guard, the Gendarmery and the Security Guard, draw 9.6% of thewages bill; and the regies autonomes account for 1.9%7. Budget classifications do not allow aclear line to be drawn between the salaries of actual civil servants and agencies not covered bythe salary mechanism.

51. As shown in Annex 2, the wage burdens imposed by ministries and other agencies do notaccord exactly with staffing levels. The Ministry of Education, for instance, accounts for 49.3%of staffing and 48.5% of the wage bill (defense and security not included), and the Ministry ofHealth accounts for 30.3% of staffing versus 20% of the wage bill (which means lower gradedstaff, or lower average salaries or less fringe benefits). The Ministry of Justice, conversely,accounts for 1.23% of the staffing strength but 2% of the wage bill (which means higher gradedstaff or higher average salaries and more fringe benefits)

Basic Wage Structure

52. Romania modified its salary laws in 1991, 1994, and 1996, and added special provisionsin 1997 covering teachers and judicial personnel. A new law being drafted by the Ministry of

6 1 $ = 7,500 lei in February 1998.

7 As mentioned above, employees of Regie autonomes have the same salary adjustments aspersonnel of state commercial entities.

14

Labor and Social Protection in February 1998 is brieflv analvzed below. The frequentmodification of this core element of the civil service system shows that Romania is still in searchof a satisfactory salary system. This cannot be found as long as the salary system does not matchexactly the scope of the civil service, as stated in the civil service statute. This scope is not laiddown and fixed by the budget but by the statutory rules, and ought to be limited to permanentemployees of the public services of the executive branch of the state.

53. In a career civil service the salary system has two aspects: a personnel classificationsystem and a salary mechanism. The personnel classification system, written into the statutoryrules, indicates the structure and the conditions of accelerated or reduced progression andpromotion in the salary scales, ladders and steps. The salary mechanism provides themathematical model and formulas corresponding to the classification system, so that employeesin identical administrative positions draw identical basic salaries, whatever the economic sectorof the public service they are appointed to: each scale corresponds to a category (e.g. S, SSD, Mor G), each ladder to a sub-category or grade (e.g. I-A, I, II, III, or IV) and each step to a salarylevel within the grade (linked to seniority and performance evaluation).

54. The current category and grading system can be used to build a satisfactory salary systemthat would serves as a motivating system through which salary increase could easily be managed.The 1996 law establishes more than 30 salary scales corresponding to an identical number ofgroups of professional sectoral activities, each involving one or several state bodies, ministries,judet, sectoral specialists, art performers, librarians, etc. Some of these groups are similar to theFrench civil service concept of cadre or class. Each group is divided into two categoriesaccording to educational level: graduated professionals (university level or short-term highereducation, S and SSD categories) and non-graduate professionals (M and G categories). Eachcategory is divided into sub-categories or salary ladders according to the professional specialty,similar to the French concept of corps, which is a professional section within a class or cadre,corresponding to a professional group. Corps, or professional specialties (e.g. pharmacist,doctor) are in turn divided into four to five grades (from debutante to the highest level grade I-A). Each grade, corresponding to a salary ladder, is divided into steps, usually four; six in thehealth sector. These steps are assigned index points that are raised by a multiplier (358,900 lei inFebruary 1998) to create a salary grid, illustrated in Table 2.

Table 2: ILLUSTRATION OF SALARAY GRIDPROFESSIONAL or ECONOMIC SECTOR

I - Category of Employees with Higher EducationSub-category: Steps

Professional Specialty Grade (salary index points)__ 2 314

Expert - consultant S I-A 1.950 2.050 2.150 2.250Expert - consultant S I 1.700 1.750 1.800 .1.900Expert - consultant j S II 1.500 1.550 1.600 1.650

2 - Category of Employees with M and G Level Educationetc.

55. Some high level civil service positions are outside this salarv grid (e.g. secretarn general.comisar general of the financial guard) and are paid flat-rate salaries without increments or steps.In career and position civil service systems the flat-rate system is mainly used for those positionsor for those employees who carry out the same function throughout their career and for top-levelgrades.

56. The following paragraphs analyze the current salary system through the six most commonmain characteristics of a salary system. This analysis will also be useful for an analysis of thesystem drafted in February 1998.

57. In a good salary system, the ratio between the second highest level of the salary scale andthe lowest level, blue collar workers excluded, should not be less than 4.5 to 5. In the Romanianclassification system this means that grade I of S level ought to be at least at 4.5 to 5 times thesalary of a beginner (debutante) at level M. Otherwise the system does not provide motivationand distortions appear (salary supplements mushroom, the civil service structure flattens, etc.).Currently this ratio is only half that figure and, in some cases, less.

58. Salary scales must provide rewards for longer service and for accumulation of experience,and strengthen the attachment of the employee to the employer. Since, in a normal civil servicestructure, everybody cannot be promoted, every employee needs a certain career perspective andsalary improvements.

59. Technically a salary scale must provide a number of increments going to about half waythrough an employees' career. If seniority is taken into account every three years (every yearduring the first three years to create loyalty), a career of 35 to 40 years (age 25 to 65) needs 13 to14 increments. Romania's current system provides only four steps (six in the health sector). Thisdoes not provide much motivation and does not strengthen employee loyalty.

60. The division of the highest level of a grade by the lowest gives the compression ratio of agrade. This compression ratio ought to be at least 1.25:1 to stimulate performance. A highersalary range (e.g. range corresponding to grades A-I and I) can be more compressed (e.g. 1.25:1)than the lower salary ranges (e.g. range corresponding to grade V with a compression ratio of1.8:1). In any case, compression ratios must either be identical or higher for higher salary ranges.Salary scales under the 1996 law have very consistent compression ratios for all ranges. Theyare, however, on the low side (1.07 to 1.13:1) due mainly to the low number of increments (four)in the salary scales.

61. The step increments, or intra-grade differentials, of the current salary mechanism arebased on fixed index points (e.g. increments of 25 or 50 points: 1.175, 1.200, 1.250, 1.300). Thissystem results in erratic salary increments across the salary system (e.g. 1.175 to 1.200=2.1%increase; 1.250 to 1.300=4% salary increase).

62. In addition, unless percentage increases are less for higher salaries than for lower ones thewage bill can become difficult to control. In some cases the mechanism makes use of this

1 6

principle, in others not. A 50 index points increase from 2.400 to 2.450 results in a salaryincrease of 2.08%; from 1.250 to 1.300 the salarv increase is 4%. For an auditor whv should itbe 5.26% increase for grade S-Il step 3 to 4 (revizor contabil ;l.900 to 2.000) and only 2.33% forgrade S-I step 3 to 4 (same function ; 2.150 to 2.200). As periodic salary increments are linkedto seniority, loyalty, and performance, a review of the progression mechanism is recommended.

63. The salary range between two categories, or the inter-category differential should expressand increase the value of training and increasing training levels, while the range between grades,the inter-grade differential, should enhance the value of higher performance and supervisionability and capacity. The prevailing salary scales do not apply a common factor to define therange between two training levels neither from one salary scale to another, nor, within the samesalary scale, from one step to another.

64. More seriously, training can appear to be be penalized in the current salary system: e.g.the salary time scale for an economist SSD level, grade I, is 1.550/1.600/1.650/1.700; the nextuniversity S level, grade IV, has a salary time scale of 1.350/1.400/1.450/1.500. The prevailingSSD level grade I is equivalent to S level grade III.

65. The inter-grade range, or inter-grade differential, is irregular from one step to another,and erratic from one category to another and between salary scales. Inter-grade ranges aregreater at category S salary ranges than at category M salary ranges, which is a correct salarytechnique. Ranges, however, are not steady and may vary from one step to another within thesame salary scale. For example, for an auditor the distance between grade III and grade II issuccessively (four steps): 16.13/15.63/ 15.15/17.65; the distance between grade II and grade I isas follows: 13.89/13.51/13.16/10.

66. An employee at the end of his salary scale is normally more experienced in his positionthan the employee at the starting point of the next higher scale. The latter is usually in asupervisory position to the former. For these and other technical reasons a salary system requirethe use of overlapping scales to the extent of about one third. None of the existing salary scalesmake use of this technique of overlapping.

67. Romania has several pension systems. According to the pension law, the state pensionfund provides pensions to contributing state workers at the age established by the Labor Code(currently after age 60 for men and 55 for women but being raised to 65 and 62). State employeesalso contribute 3% of basic salary to a complementary pension.

68. The unequal system of bonuses, allowances and benefits-some included in the basicsalary and others not-neither facilitates the assessment of the viability of the fund nor the linkbetween the salaries and expected pension at retirement age.

69. Currently, pension benefits amount to about 70% of salary but can be higher than theactual last salary. Calculation is based on 54% of the highest salary of the five best years duringthe past ten years to which is added all permanent benefits and salary supplements and 14%complementary pension.

70. An important personnel policy tool for governments is the use of special allowances tosteer employees toward specific sectors or geographic areas. As conditions may change over timeand shortage or abundance of candidates as well, personnel policy has to take into account actualand medium-term expectations.

71. On a more permanent basis governments can draft special statutory rules regarding someprofessional categories of personnel. This system is, however, more rigid and may causeproblems-such as the current existence of teachers who do not teach, and economists andauditors who teach without getting teacher-level salaries.

72. A career system granting salary supplements ought to respect the principle of equal rightsacross the civil service for civil servants in identical statutory positions; giving the holders ofcertain posts special allowances above their basic salary does not infringe principle of equality.

73. Currently, in a system based on branches of the economy, the civil service is fragmentedby ministries and other main state bodies. According to the current practice, salary allowancesare granted to employees of ministries to reflect sectoral preferences or take into account wagedemands by some categories of personnel and to retain employees in the public sector despitelow basic salaries. Even ministries with above average pay are granted special allowances.Employees at supra-ministerial level (Presidency, Prime Ministry, Constitutional Court) receivea salary supplement of 30%; at the Ministries of Finance, Labor and Social Protection, ForeignAffairs, the supplement is 20%.

74. This practice, though not unexpected in an environment of overly low salaries, isdisturbing for a comprehensive civil service salary policy and tends to dislocate the commonsalary mechanism. The solution is a better salary system that treats the civil service as a singlegroup distinct from other branches of the economy.

75. This piecemeal approach, cost of living adjustments, and budgetary constraints, havecaused salaries to rise unevenly. As a percentage of their levels in October 1990, salaries were asfollows in January 1998: average in the economy: 63.27%; public administration: 42.72%; in theeducation sector: 66.99%; in regies autonomes: 75.71%; in the health sector: 46.630 /o-raised to53.63% by a 25% salary increase in February 1998.

876. Special bonuses, allowances , fringe benefits and in-kind benefits are personnel policytools that are not aimed to rectify, to correct or to adjust the salary system or the salarymechanism. When salary supplements exceed 30% of the basic salary, the salary mechanismbecomes undermined, financial and administrative personnel policy tools become ineffective,and financial personnel management less transparent and less equal. Employees become more

8 With the exception of social protection allowances such as child allowances, socialcanteens, etc. Romania has a universal child allowance system for all children withsupplemental allowances to families with several children.

'l

interested in supplements than perfornance. If salary supplements are included in the basicsalary on an unequal basis across the civil service. the pension system will also become unequal.

77. As explained above, periodic salary increments (step increases) are bonuses foraccumulated experience and a reward for loyalty. Above this system the employee is entitled tobonuses for length of service: 5% of basic salary for 3 to 5 years of service, 15% for 10 to 20years and 25% for over 20 years.

78. A July 1997 law provided teachers and other education staff special allowances andbonuses. These included supplements of 5 to 80% of their basic salaries depending on thelocality they serve in, and bonuses for length of service, uninterrupted service, advanced degrees,and management tasks.

79. Such a system of special allowances can be difficult to handle and undermines the basicconcept of a salary mechanism: If a salary mechanism is to play the role for which it isconceived, extra benefits should not exceed 30% of the basic salary. From a civil servicemanagement point of view, introducing an amalgam between teaching staff and non-teachingemployees of the ministry is a breach of the principle of equality of all civil servants across thepublic administration. From the point of view of civil service statutes a more advisable solutionwould be a special statute for teachers within the general statute of the civil service.

80. A July 1997 government order also modified the salary system for judicial personnel, andtheir administrative and technical support staff that are even more distortionary than the teacherpackage. The system of allowances and pay for performance resulted in an average salary leveltwice as high as in other parts, of the civil service. One provision regarding pay for performancecould have an increasingly huge impact on the wage bill. Under the supervision of the SuperiorCouncil of the Magistracy, magistrates can earn 3% of their basic salary for each judgmentpassed, even if several judgments are passed by the same magistrate in one day. This provisionled to a rapid reduction of.pending cases.

81. Monthly net pay, according to the Budget Law of April 3, 1997, amounted to an averageof about 600,000 lei (equivalent to $80 in February 1998). Low salary averages are found in theHealth sector (400,000 lei) and in the Ministry of Water, Forestry and Environmental Protection(485,000 lei).

82. Higher average pay levels are found:

* at the supra-ministerial level: the Presidency (1,311,000 lei), the Constitutional Court(1,441,000 lei), the Court of Audit (1,563,000 lei), Competition Council (1,636,000lei);

* at the ministerial level: Ministry of Justice (1,125,000 lei), Public Ministry(1,467,000 lei), Ministry of Research and Technology (1,012,000 lei); and

* exceptional average monthly salary levels are found in Ministries with foreignrepresentations: Foreign Affairs (5,156,000 lei) and Tourism (2,311,000 lei).

83 Two yardstick-s can be used to make a theoretical and rough assessment of the level ofsalaries paid in a civil service. The first measures the entrv-level gross salary of a university-levelemployee (Romanian debutant or level S grade IV). This gross annual salary should be at leastas high as GDP per capita-now about $1,607- or about I million lei. It is currently only halfthis level.

84. The ratio of this annual salary expressed in GDP per capita, to the fiscal burden, as apercentage of GDP, is I to 20 in most European countries, 1 to 10 in Southeast Asian countries,and about 1 to 1 in African low-income countries. Currently a Romanian employee level S gradeIV earns a gross salary of about $1,000 a year, or 0.62 of GDP per capita. The planned fiscalburden of the government is 29.5% of GDP. The ratio between these two figures is I to 47.58.

85. If the salary of this Romanian employee were doubled to a gross salary 1.24 times GDPper capita the ratio would be 1 to 23, closer to European levels, but below the ratios found in lowincome countries. According to statistical data of the Ministry of Labor and Social Protection,this salary level is found in the Mail and Telecommunications sector.

86. This theoretical analysis leads to the conclusion that salary levels in the Romanian civilservice are only half the level they should be, a situation also found in former Soviet Unioncountries. This sort of situation usually creates problems: an increase in all kinds of salarysupplements and benefits in kind, inequality among civil servants appointed to different publicservices, accelerated progression and promotion, crushing of the normal structure of the civilservice hierarchical pyramid, an increase of salary levels outside the salary mechanism9 , anexodus toward services with a higher pay, particularly to commercial and profit-oriented bodies,a search for employment in the private sector, a lowering of civil service standards, a weakeningof enforcement of statutory rules, indulgent performance evaluations, weakening of loyalty, andworking at second jobs.

87. Romania cannot afford to double its wage bill to 42% of fiscal revenues and 48% ofexpenditures, which would be likely to accelerate inflation, increase the cost of living, andstrengthen the wage-price spiral. Structural measures could become inevitable: a reduction of thescope of the civil service, a change in certain management ratios, the transfer of some publicservices to local autonomous government or to private sector institutions (outsourcing, licensing,etc.), a balance between the number of employees and the level of their remuneration. From aninstitutional point of view, the implementation of a good salary mechanism, accompanied by aclearly defined short- and medium-term salary policy within the macroeconomic framework,managed by a central civil service leadership, could overcome the difficulties inherent to thistransition and give employees a clear view of the short- and medium-term evolution of theirsalary levels.

9 E.g. the recent creation of the A-1 level; special pay level for the new created position ofSecretary General of the Ministry.

2 ()

88. Such a new salary mechanism is not compatible with the prevailing system oJ bonuses.allowances and other salary supplements that serve as substitutes for salary increments. A newxsalary system requires a revision of the existing system of allowances and financial incentives.which should not exceed one-third of total compensation. It requires also a revision of thepension calculation.

89. The government signed an agreement in July 1995 with the employer's association andthe trade unions to make six-monthly minimum wage adjustments. In mid-1997 the minimumwage was 225,000 lei ($30) and in February 1998, 358,900 lei ($45), an increase of 59.5%.

90. As in all other civil and public service management issues, salary increases andadjustments are managed by branches of the economy. This system of management conflictswith the principle of equality within the civil service, one of the fundamentals of a career system.The government program intends to correct the discrepancies between budgetary sectors-meeting that goal is a major prerequisite if the government wants to create a professional corps toprepare and implement its policies and programs.

91. The salary mechanism, using the current index point system, provides an excellent toolfor managing cost of living adjustments by regulating the value of the index point. The value ofthe point can be set according to the minimum wage for all branches of the economy. If thestructure of the salary mechanism matches that of the personnel classification structure, thesalaries of the civil service can be managed on an equal basis across the whole civil servicewithout infringing on the principle of equality.

92. Romania has a triple-digit inflation rate. From January 1996 to January 1997 inflationwas 76.2%; from December 1996 to December 1997 it increased to 151.4%.1i Indeed in theinflationary period of the 1990s, compared to October 1990, real wages of civil servants haddropped nearly 44% by September 1997. The government's economic program aims at aninflation rate of 37% for 1998 and, according to OECD estimates, a further fall to 20% isexpected in 1999.11 The government intends, over the same period, to index salaries to 60% ofanticipated inflation. While periodic adjustments will still be required, decreasing inflationprovides an opportunity to implement a salary mechanism, a salary management system, and asalary policy aimed at capacity building within a consolidated civil service.

Civil Service Wages in the Draft Statute

93. The February 1998 draft of the Civil Service Statute proposes a salary mechanism to beapplied to employees of the public administration of the state, local government personnel, andall subordinated bodies financed totally or partly-by the state budget. Employees of Parliamentare not listed; nor are authorities of county, county councils and prefect offices, mayoralties of

10 Monthly Statistical Bulletin of the National Comrmission for Statistics.

The Economist, February 28th 1998.

cities and villages. This is probably only a matter of formulation. the intention of the draft beinizprobably an identical scope.

94. The proposed new mechanism is not oriented toward a unified civil service, but covers allsalaries drawn entirely or partially from the budget. In countries applying administrative law andconcepts, the criterion is civil servants, a civil servant being an individual appointed, within thepublic services of the state, to a permanent position corresponding to his grade. These permanentpositions are listed in staffing charts encompassing all public services to which civil servantsmay be appointed. The administrative and financial statute of the civil servant is attributable tothe statute or typology of the concerned civil service: state administration, specialized technicalagencies, local government, non-profit oriented autonomous body, profit oriented autonomousbody, public corporation and professional association (i.e. barristers, medical association), etc.

95. The draft confirms the mixture between career and position system: it defines the scope,not with regard to employees of the state, but to employees belonging to the departments of thepresidency, the government of Romania, the central and local bodies and all subordinated publicbodies. Some provisions of the draft refer to employers, who are not always administrativeauthorities; the system is on the boundary between public and labor law.

96. Analyzing the system of salary supplements and the broad range of allowances, someincluded, and others not, in the basic salary, and the pension system, may reveal an importanthidden impact of each new salary mechanism. Any reform of the salary mechanism has toencompass the whole compensation system, and a salary mechanism is an essential part of thecivil service statute from which it cannot be separated if transparency and good governance is tobe respected.

97. From a methodological point of view, the objective of the reform of a salary mechanismis to improve the salary system; if its main objective is aimed at the increase of salary levels, theresult is usually unsatisfactory.

98. The new wage system has three components:

* a universal reference value (URV), which will be the average salary within theeconomy, expressed in lei, linked to the consumer price index;

* A sectoral reference value (SRV), expressed in lei, and as a percentage of theURV;

* an intersectoral priority indicator (ISPI), wvhich is the ratio, expressed inpercentage, between the SRV and the URV (e.g.: URV: 800,000 lei, ISPI: 45%,SRV: 45% of 800,000=360,000 lei.

The SRV is the factor by which the index points of the new salary grid are to be multiplied toobtain the new basic salary, roughly similar to the index point value explained earlier.

99. The personnel classification system remains unchanged. but the index point system isreplaced by a grid system providing minimum and maximum index points instead of indexes.The intersectoral priority indicator (ISPI) allows the government to increase salaries in somesectors more, or more rapidly, than in others, while the Sectoral reference value (SRV) allowsmanagers to increase or decrease salaries within a minimum and a maximum, as a pay-for-performance tool. The value of the minimum and maximum is obtained by multiplying the intervalvalues by the sectoral reference value (SRV). Table 3 below illustrates the structure:

Table 3: ILLUSTRATION OF SALARAY GRID PROPOSED IN DRAFTSTATUTE

PROFESSIONAL or ECONOMIC SECTOR: (ISPI)I -Category of Employees with Higher Education

Sub-category:Garda Financiara Grade Intervals (SRV)

Minimum Maximum

Commissar Principal S I-A 2.875 4.975Commissar Principal S 1 2.575 4.450Commissar Principal S 11 2.275 3.900

2 - Category of Employees with M and G Level Educationetc.

100. While the system may allow salary adjustments by sector to be managed, severaldrawbacks should be noted, particularly given the government's choice of a "career" civil servicesystem. Sectoral salary preferences put a barrier on intersectoral redeployment and transfersacross agencies or geographic areas. In a career system the civil servant is recruited for the statein general and not for a budgeted sector or a ministry or subordinated body.

101. Employee motivation and performance can also be affected by preferential salarysystems. Employees want to be able to manage and develop their careers, and salary increases,predictably. They need transparent, understandable, fair and equitable rules, and a transparentand suitable salary mechanism in a system where equal opportunity is a basic principle; feelingsof inequality undermine every rule and every effort toward higher performance. In the newsystem employees will be drawn to priority sectors, but there will always be uncertainty as tohow these sectoral priorities will evolve, and whether job performance or sectoral choice is moreimportant.

102. Without central management leadership, and with a lack of reliable data other than theauthorized staffing levels, weak management and low salary levels, maximum salary levels willbe reached very quickly. Sector preferences will always go up, until a balance is reachedbetween all sectors. The system of salary supplements and allowances also makes it difficult tocalculate the financial impact on the budget and on the pension system.

103. The system also violates the principle of equality among civil servants: a legal adviserappointed to a state agency classified in one sector will not draw the same salary (and once

retired the same pension) as a legal adviser appointed to a public service whose activities areclassified in another sector. Several other problems remain under the proposed new system:

* The general compression ratio (category M to S-grade A-1) would rise from thepresent 2.3 to between 3.8 and 4, which remains below the technically requiredminimum of 4.5 (which normally excludes the 1% top level salaries);

* The theoretical length of the salary scales, the span between minimum andmaximum, with a theoretical increase of 3%, results in a scale length ofapproximately 20 steps (even longer with the normally required decreasingincrements); this is too long;

* Grade compression ratios are between 1.5 and 1.73, which is relatively highparticularly with regards to the evolution of the wage bill. These compression ratiosalso show greater compression at lower levels (1.5) than at higher levels (1.73),while a good salary mechanism increases compression at higher levels--whichreduces impact on the wage bill;

* Inter-category and inter-grade ratios remain deficient and training can appear to bepenalized: e.g., the inter-grade difference of SSD grade I and S grade IV is negative(minus 8%); andT the overlapping of salary scales (non-existent in the current system) is improved butremains very low (average between 10 and 13%) and is also unsteady.

104. As long as the salary mechanism has to cover all budgetary sectors and has to regulatesalaries of other branches of the economy, it will be very difficult to achieve a satisfactorysolution. If, however, the scope of the salary mechanism is limited to employees appointedwithin the public services of the state, to a permanent position corresponding to their grade,establishing a transparent and satisfactory mechanism becomes much easier.

105. Such a system could include a link between the salaries in the civil service, other parts ofthe public sector, and the private sector using an index point system (managing the value of thepoint to coordinate with salaries in other sectors), with a salary system built around a commonsalary spine.

106. Comparisons between civil service pay levels and pay levels in other sectors, public orprivate, are always difficult. When formal pay levels are identical, hidden allowances, fringebenefits, bonuses, travel, housing, and other rewards can make a huge difference. In countrieswith hidden economic activity, reliable information on salaries and jobs is difficult to gather.

107. Even within the state sector, autonomous agencies are able to grant financial incentivesrending comparability difficult. The pay structure is also very different from one agency toanother and may change over time. Usually, pay levels in the private sector are higher than in thepublic sector, particularly at upper management level. This is offset by a more stable job andcareer paths in the public sector, and often by higher pensions and status.

- -t

108. In Romania. although not much information was collected durina the PER mission.anecdotal evidence suggests that pay levels in the private sector are three to four times publicsector salaries except for manual workers and high level managers who can earn up to ten timesthe civil service salary level 1*. This is not only a question of salary levels; it is also a question ofsalary compression, salary mechanism and salary policy.

VI. CIVIL SERVICE MANAGEMENT

109. In Germany and The Netherlands, the Ministry of Internal Affairs heads the civil service;in Denmark and Ireland it is the Ministry of Finance; in Luxembourg, France, Belgium, Great-Britain, Greece and Portugal a special civil service department exists within the Office of thePrime Minister, headed either by a minister or a secretary of state. In Spain the leadership is withthe Ministry of Public Administration and Autonomous Communities; in other countries, a fullministry is in charge of the civil service. In several French-influenced countries civil service is adepartment within a Ministry of Civil Service and Labor.

110. These countries have in common a central permanent service, the operating arm of anauthority with political responsibility and accountability within the government, in charge ofoverall leadership and direction in matters relating to public personnel management for allministries, carrying out personnel policy and supervising policy implementation but not handlingroutine personnel matters. No permanent service of this kind exists in Romania, where the civilservice is split up in ministries and agencies, without central leadership. The human resourcesunit of the General Secretariat of Government is mainly in charge of performing juridical tasks.

111. The lack of a central management unit has several consequences:

* Fragmentation of civil service management issues (salaries at the Ministry of Laborand Social Protection, rules and regulations at the Secretariat General Office,personnel data information at the National Commission for Statistics, administrativemanagement without a central standardizing unit, salary supplements and allowanceswith line ministries and agencies);

* A lack of a comprehensive policy in terms of personmel management (recruitmentpolicy, training policy, mobility policy, career development issues, performancepolicy, staffing policy, uniform management tools and computerization); and

* A lack of accountability in personnel management putting pressure on the Ministryof Finance from ministries and public spending bodies who will always request morepersonnel.

12 A situation not exceptional in some European countries.

112. Currently personnel policy can only be distilled, ex-post. from individual decisions takenat the level of the different subordinate bodies of the state. The draft organic civil service lawhas no provision for creating a permanent public service supervision agency to put an end to thisfragmentation. Instead, it calls for creation of a High Commission of Public Officers for arenewable period of three years. The president of the Commission would be appointed by theprime minister with the rank of secretary of state. The High Commission would be staffed by aspecial department within the General Secretariat of the Government, and meet at lease once amonth.

113. Without a central unit in charge of personnel management there is little chance thatpolicies will be designed and implemented with consistency. Thus, creation of a permanentcentral agency in charge of civil service policy and regulations, linked to the civil servicemanagement units in each ministry is a prerequisite to an efficient civil service management andhuman resources development system. The proposed High Commission could have aconsultative role on matters regarding the principles governing the civil service.

114. Without the creation of a competent central unit for human resources development andmanagement it will be very difficult for Romania to carry out a civil service reform aimed, asstated in the draft statute, at "rendering public administration a real autonomy and, at the sametime, a high level ofprofessionalism." The main functions of such a central unit would be to:

- draw up, at the request of the government, policies governing personnel employed bythe state and supervise their implementation;

- plan and give direction in matters relating to public personnel management to allagencies in accordance with government policy;prepare and issue regulations in personnel matters;

- supervise, coordinate, and guide ministries and government agencies inimplementing these regulations; andprepare and monitor personnel management decisions by the human resourcesmanagement units in the ministries and provide them with the techniques,standardized management tools and support.

115. The main subordinated units of this central service could be organized into directorates ofstatutes and statutory regulations, discipline and litigation; recruitment and training; personnelpolicy, career management and performance evaluation; staffing, training needs assessment, jobevaluation and skill profiles, and the data bank and computer support. One branch of thispermanent unit could' also be responsible for the managing public service structures,organization, staffing charts, etc.

Recruitment

116. Currently recruitment is carried out according to the 1973 Labor Code and individualgovernment orders. Responsibility for recruitment belongs, autonomously, to each ministry andpublic agency. There are no standardized recruitment procedures. The only limitations are the

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authorized staffina strength and wage bill limits fixed bv the budget. and some nomis (such as alimitation in the central public administration of 20% of personnel in line managementpositions), and general conditions and criteria (announcements in the local press. diplomacertification, health certificate, etc.).

117. At present, and under the new draft, a committee'3 of three to five members within eachministry or agency, organizes competitions (if several candidates are applying) or examinations(if only one person applies) to fill published vacancies. The committee is charged with selection,recruitment, and appointment. Competitions and examinations can be written and oral, or onlyoral. If two or more candidates score equally a new written test is taken.

118. If the agency has a human resources department, its head serves as president of therecruitment committee, even if the vacancy concerns a higher position than his. The newlyappointed secretaries general of the ministries were selected according to this procedure by theirsubordinates. The committee can be composed of less trained and experienced staff than thecandidate. A candidate refused in one agency or ministry can easily apply for a post in another.Thus, recruitment procedures are far from standardized across government, and selection may-or may not-be objective, as no formal and practical system and procedure guaranteesimpartiality and equal access.

Performance Evaluation

119. The purposes of a performance evaluation system are to screen candidates for promotion,ensuring fair and equitable progressive selection of civil servants to fill fewer posts at a higherlevel; motivate employees by rewarding outstanding accomplishments, experience and seniority;and, in general, to improve the delivery of public services. Performance evaluation proceduresshould also guide individuals in their career plans. Romania's current performance evaluationsaim mostly, however, at providing a legal justification for salary increases.

120. No country has a perfect performance evaluation system but some are far better thanothers. Romania's current system-which would be continued under the draft statute-is mainlybased on subjective elements. The overall objective and purposes of the appraisal exercise are notclearly set out as part. of a control process to allocate rewards or to speed up progression orpromotion, select candidates for higher positions, and improve public service delivery.

121. One fundamental element of a good performance evaluation system is the obligation ofthe evaluating authority to know exactly the level of performance expected from the employeeunder evaluation during a given year and to have notified the employee of these expectedperformance criteria. The basic tool of such a system is a job description, to which is addedindividual performance expectations.

13 This is a legacy of the former system when Ministries and Committees were similar to statecompanies with a board of directors in charge of recruitment.

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122. In the current svstem-and the new draft-individual performance is appraised annuallywith four possible ratings: very good. good, satisfactory and poor. The criteria are mainlysubjective: qualitv of work, conscientiousness, general conduct. punctualitN. professionalknowledge.

123. Although perfonnance evaluation is compulsory on an annual basis, practice is differentand filing of the results is not recorded in the same way from one ministry to another. It isnevertheless a legal prerequisite for progression and promotion, not always taken into account inthis period of transition, and related turnover and redeployment of loyal and less politicallymarked employees of the post-revolution era.

Promotion

124. Progression on the salary scale compensates experience acquired through length ofservice. Progression provided for seniority in the civil service and accumulation of experience isnot explicitly provided in the new draft law. While it should be, the lack of a personnelclassification mechanism under the draft law makes this difficult. The current practice is to grantseniority bonuses every two years. As salary scales are exceptionally limited (only three to foursteps) and are very compressed (ratio of 1.11), this does not induc diligent performance.

125. The Romanian system allows both promotion to higher categories (based usually onachieving a higher formal training level), and promotion to higher grades within categories. Thecurrent salary scales are not overlapping and promotion to a higher grade does not always differfrom a progression to a higher salary level.

126. Promotion to a higher level in the professional categories is based on competition orexamination set up by a departmental examination commission once the position is approved bythe state or the local budget, while promotion to managerial positions follows the procedure forrecruitment, with staff allowed to participate in the competition.

Termination and Retirement

127. As state employees are in a legal situation and not in a contractual one, the statutory rulesmust provide for the different possibilities to end the link between the state and its employeesand the conditions to be met by the state and employees. The draft law provides the usual list ofreasons: resignation, dismissal, discharge, retirement and death. Conditions of separation are insome cases less usual or lack the formula of conditions that guarantee equal separation conditionsfor each employee. If a public agency reduces personnel, there are no rules for selecting theemployees to be dismissed. Under the draft statute, separation may occur in the case of a transferin the interest of public service. The conditions for resignation do not include conditions usuallyincluded in voluntary departure programs.

128. Age conditions for pension are provided by the Labor Code. The compulsory retirementage is 60 for men, and 55 for women. It is expected that these limits will be modified to 65 for

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men and 62 for women. The new draft law adds length of ser-ice conditions: 30 vears for menand 25 years for women. No system of proportional pension is provided in the draft.

129. Currently, pension benefits amount to about 70% of salary but can be higher than theactual most recent salary. The calculation is based on 54% of the highest salary of the five bestyears during the past ten years, to which are added all permanent benefits and salarysupplements. A 14% complementary pension is added to this amount.

130. Under the draft law, pension benefits would represent 75% of basic salary, supplementedby different kinds of allowances and benefits. To this amount is added 1% of the net incomewithout exceeding 100% of the net income obtained the last month before pension retirement.State social security benefits are also added to this total. The financial impact of this systemneeds evaluation; even if in the current situation pensions may not seem very high, a salaryreform could have a huge impact on this rather unusual method of calculation.

131. In many countries pensions are set at 2% of the most recent monthly salary (or average ofthe latest three to five years), per year of service, so that an employee with 40 years of servicewould receive a pension of up to 80% of his most recent gross salary.

Reform Strategy and Process

132. It is clear that civil service reform in Romania cannot be limited to formal measures andthe enactment of a new civil service law. A strong underpinning of fundamental structural andorganizational changes is needed to develop a coherent and coordinated process for preparingand examining options, achieving consensus, developing implementation strategies, andevaluating their results.

133. The Romanian Governrment and the European Union's PHARE Programn agreed in 1994to a technical advisory program for public administrative reform, based on the following broadlydefined objectives: (a) creation of a professional apolitical and career public service; (b) movefrom central command to decisions and actions at local level and close to the citizen; (c) localdecision-making autonomy; (d) provision of information; (e) respect for citizens; (f) simple andflexible legislation; (g) definition of roles and responsibilities; and (h) separation of political andadministrative functions. The program was mainly directed toward changes facilitating Europeanintegration. While important pilot programs and training have been carried out, the program didnot aim to be a comprehensive reforrn package or provide an administrative reforn capacity, andno global strategic approach for civil service reforn was proposed to the government.

134. Romania's Council for Reform has mainly an advisory role, and responds to initiativesemerging from other components of the public administration, rather than being charged withdeveloping and monitoring a comprehensive reform program. It is, thus, required to take alargely passive role, rather than being a dynamic voice for reform. This leads to a piecemeal,agency-by-agency, approach to reform that is not conducive to generating fundamental changes.An integrated action plan based on an agreed set of strategies is, thus, needed to overcome

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fragmentation in the public administration. The Council for Reform-given an appropriatemandate-remains the most appropriate institutional unit to manage the reform process in anintegrated way at supra-ministerial level encompassing the whole administrative system.

135. The first and most important element of the recommended global strategy is a macro-administrative approach based on a strategy of fundamental change. The macro-administrativeapproach aims to identify and prioritize actions that will have an impact across the whole publicadministration-such as setting up a standardized human resources management system, creatingcivil service management leadership, and standardizing the management typology of differentcategories of public services. At this sta